The impact of the ESG Premium: empirical analysis of betas and characteristics in European and American financial markets.

Abstract

The following paper proposes to develop and analyze the relationship between Environmental, Social, and Governance (ESG) indicators and the financial returns of companies listed in the Euro Stoxx 50 for the European landscape and the returns of companies listed in the S&P500 for the American landscape. In particular, it focuses on the assertion that companies with high ESG scores could have lower expected returns, i.e., result in a negative ESG Premium. It examines whether the relationship of negative ESG premium is driven on the one hand, by managing the lower risk associated with high ESG scores (beta), and on the other hand, by investors' preferences for companies with high ESG scores (characteristics). Through an empirical analysis between returns and the Fama & French factors, it is determined whether it is the ESG factor, as a distinguishing characteristic, that determines the ESG Premium or the risk factor, hence the beta. This study, in support of the existing financial literature, aims to provide evidence of the complex relationship between ESG and financial returns.